Full Stock

What Is Full Stock?

Full stock is a stock with a par value of $100 per share. A full stock issue can be either a preferred share or common share, although for practical purposes today par value of common stock is set at zero or at a price very close to nil. Therefore, full stock typically refers to a preferred share with a par value of $100.

Understanding Full Stock

Preferred stock with a par value of $100 per share is full stock. Preferred stocks share characteristics with bonds, including that they have a face value. The yield on a preferred share is simply calculated as the annual dividend divided by $100 (or face value). For example, an annual dividend payment of $7.50 per share is equivalent to a 7.5% yield.

Preferred shareholders are paid out ahead of common shareholders in the event of the company's bankruptcy, and are paid available dividends prior to common shareholders. The price of preferred shares fluctuates like bonds, meaning preferred shareholders don't directly benefit from the growth of the company like common shareholders do. Preferred shareholders typically don't have voting rights, whereas common shareholders do.

Preferred shares can have multiple features that will affect how they are priced and traded:

• Cumulative or noncumulative
• Callable
• Convertible
• Participating
• Adjustable-rate

Common stock is generally issued with a zero par value or something just nominally above it for accounting purposes. $0.01 par value is typical, as is $0.001, and so on, for companies with shares outstanding. Apple Inc. (AAPL), for instance, set the par value of its common stock at $0.00001 per share. The purpose of negligible common stock par values is to render any potential liability to stockholders meaningless if the stock became worthless. In the early days of public companies, when share prices of full stock fell well below $100 or sank to nothing in a bankruptcy, shareholders who owned full stock made claims against the companies to be made whole at $100.

Par value, if something above zero, is part of a corporation's legal capital; it is known as paid-in capital (or paid-up capital). The portion in excess of this nominal value is the firm's additional paid-in capital. For example, a firm that issues a share of $0.01 par value stock for $30 will credit the Common Stock account (in Shareholders' Equity) a penny. The additional paid-in capital account will be credited $29.99 for that single share issued.

Full Stock Example as Interest Rates Change

Assume that Bank of America Corp. (BAC) issues a $100 par value preferred share with a 6% dividend. A holder of 100 preferred shares would receive $600 in dividends each year (100 shares x ($100 x 0.06)). Their cost upfront is $10,000 ($100 x 100 shares).

While the par value is $100, the price on the secondary market will fluctuate as interest rates change. For example, if comparable companies are paying 5%, receiving 6% is more favorable so the preferred stock will trade above $100. If the going rate is 8% for comparable companies, then 6% isn't very attractive, and so the preferred stock will trade at less than $100.

Preferred stocks are perpetual in nature. If interest rates rise, the preferred share price will fall, and there is no guarantee the investor will get their face value back, but they will continue to receive the dividend. If interest rates fall, the preferred shareholder may be able to sell the preferred for more than $100, or the company may call the shares in and replace them with lower-rate preferreds.